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Are residential rent controls on the horizon for the UK?
By John Condliffe
In the recent past there have been no rent controls for open market residential tenancies (known as assured shorthold tenancies in England and Wales) in the British Isles. There are rent controls for regulated tenancies (such as protected tenancies under the Rent Act 1977) but such tenancies are not often found in the parts of the private residential sector in which large scale investors and developers are active.Rents are therefore normally set by the market.
Recently the UK government reiterated its opposition to restrictions on rent levels at the outset of a tenancy, reasoning that “historical evidence suggests that these would discourage investment in the sector, and would lead to declining property standards as a result, which would not help landlords or tenants”. However London Mayor, Sadiq Khan, has called for rent controls in the capital to mirror other cities like Berlin and New York.
In other parts of the British Isles open market rent controls are possible. In Scotland, local authorities can apply to Scottish Ministers to have part of their area designated a Rent Pressure Zone. If an area is so designated there will then be a cap placed on the amount by which rents for existing tenants can be increased within that area (subject to a minimum annual increase of CPI plus 1%). Any such statutory cap would not limit the level of starting rents. No such areas have yet been designated.
Certain areas in the Republic of Ireland have been designated as “Rent Pressure Zones”, including parts of Dublin, Cork and Galway. In a Rent Pressure Zone the rent payable under a tenancy may not be increased so as to exceed the sum of a particular formula which equates to about 4% of the current rent. This restriction applies for a fixed period and is currently in force until December 2021 but may be extended. The restriction applies to both new and existing tenancies.
With the current focus on affordable housing in England and Wales, it remains to be seen how things will develop. However, it is clear that government and investors need to consider the effects that any controls (on both initial rents and rent increases) will have on supply and quality of existing and new housing.
